Cost of Living Soars as Inflation Rises Most in 3 Years

The cost of living in the U.S. rose more than forecast in May reflecting higher prices for everything from autos to hotel rooms, signaling raw-material expenses are filtering through to other goods and services.

The consumer-price index increased 0.2 percent, compared with the 0.1 percent median forecast of economists surveyed by Bloomberg News, figures from the Labor Department showed today in Washington. The so-called core measure, which excludes more volatile food and energy costs, climbed 0.3 percent, the biggest increase since July 2008.

Higher input prices are leading companies like McDonald’s Corp. (MCD) and Abercrombie & Fitch Co. (ANF) to try to pass cost increases onto customers strained by more expensive gasoline and 9.1 percent unemployment. At the same time, Federal Reserve Chairman Ben S. Bernanke’s has repeated that the jump in commodity expenses will prove temporary.

“We’re seeing a broad-based bleed through of energy and commodity price pressures into components throughout the core,” said John Herrmann, a senior fixed-income strategist at State Street Global Markets in Boston who correctly forecast the gain in core inflation. “The Fed has to be more adamant about their credibility as an inflation fighter.”

Manufacturing Shrinks

Manufacturing in the New York region unexpectedly shrank in June, a sign factories continue to struggle following the disaster in Japan, another report today showed. The Federal Reserve Bank of New York’s general economic index dropped to minus 7.8, the lowest level since November, from 11.9 in May. Readings less than zero signal contraction in the so-called Empire State Index, which covers New York, northern New Jersey and southern Connecticut.

Stock-index futures extended earlier losses after the reports. The contract on the Standard & Poor’s 500 Index maturing in September fell 0.9 percent to 1,273.2 at 8:50 a.m. in New York. Treasury securities rose, sending the yield on the benchmark 10-year note down to 3.07 percent from 3.10 percent late yesterday.

The cost of living in the U.S. rose more than forecast in May reflecting higher prices for everything from autos to hotel rooms, signaling raw-material expenses are filtering through to other goods and services.
The consumer-price index increased 0.2 percent, compared with...